Three bidders left in Hummer auction: sources

Thursday, April 9, 2009, 10:56

Three bidders remain for General Motors Corp’s Hummer brand, two sources with knowledge of the matter said on Wednesday, adding that current offers range from $100 million to $200 million in cash, in addition to other commitments.

None of the bidders are automakers. One bidder is from the United States and the other two are from overseas, the sources said, adding that the bidders include private equity and wealthy individuals. The sources declined to be identified because the details of the auction are not public.

Under the terms being discussed for the Hummer sale, a buyer would take over GM’s liabilities for its 125 US Hummer dealers and commit to further investments in areas such as engineering, marketing and sales, the sources said.

GM’s plant in Shreveport, Louisiana, which makes the Hummer H3 and the H3T pickup, will not be part of the deal, the sources said. Instead, GM will continue making the vehicles there and will supply them to the new owner.

GM has only recently hired an engineering firm to prepare an investment plan for future Hummer models to submit to the remaining bidders for their consideration in shaping final proposals, the sources said. GM declined to comment on the specifics of the process.

“We have received several strong bids for the brand and those are in the final stages of review,” GM spokesman Nick Richards said on Wednesday. “We are cautiously optimistic that we will report a favorable outcome to sell the brand in a very short time period.”

The details underscore how GM’s ten-month-long effort to unload the unprofitable Hummer brand has run longer than expected, and will yield less than the automaker’s bullish expectations when the process began.

The terms of the deals being discussed also would keep GM as a manufacturer of the vehicles at a time when it is under pressure to simplify its vehicle line-up and streamline its engineering efforts.

GM cannot sell its Shreveport plant because it also makes the Chevrolet Colorado and the GMC Canyon there.

LOSSES, LOANS

GM, which has lost about $82 billion since 2005, has received $13.4 billion in federal loans and is seeking more than $16 billion in additional government aid.

GM had promised to have a decision by the end of March on whether it would sell or fold Hummer. But it missed that deadline, along with other key targets set by the White House-appointed autos task force.

The task force has given GM 60 days to come up with a restructuring plan that cuts costs and debt levels more deeply than the automaker had planned. By that point, officials have promised a decision on whether to support GM’s turnaround as a much smaller auto company or whether to put it through a bankruptcy process intended to shed debt and laggard assets.

It was not immediately clear how a GM bankruptcy would affect the interest of the remaining bidders for Hummer or whether it would delay the closing of any deal.

BIDDER REJECTED

An industrialist from Kentucky in March offered GM $100 million in cash for Hummer, along with an investment commitment of a $100 million for engineering, another source with knowledge of those talks said.

The offer also assumed GM’s franchise agreement liabilities with Hummer dealers, estimated at about $350 million, the source said.

The bidder, who owns several companies that supply parts to the auto and aerospace industries, had also put together plans for new power train options for Hummer, including a hybrid version of the H3 that would double its fuel economy from the current 14 to 18 miles per gallon.

GM rejected that bid last month, after asking for the cash offer to be raised by $100 million, the source said. Investment bankers had initially estimated that Hummer could fetch between $500 million and $750 million, considering it a distressed asset.

But as the months have passed by, that valuation has been hurt by the weakening economy, continued tightness in credit markets and a lack of interest, bankers have said.

GM is also facing the challenge of selling the gas-guzzling brand amid a plunge in US auto sales, which have fallen to their lowest level in almost three decades.

Moreover, the Hummer auction started last summer, when oil prices reached record highs and caused consumers to shun big SUVs and trucks, a shift most analysts expect to be permanent.

GM sold about 27,485 Hummers in the United States in 2008, down 51% from a year earlier. Hummer SUVs start at roughly $31,000 and go up to nearly $72,000 with options. (Reuters)

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